D&D Note (8.18.2022) ~ Light Summer Volume Creates Overbought Market with Upside Capped at 200 Day Moving Average ~
Light volume in the dog days of summer can lead to big moves that have no conviction up or down. Right now we are seeing that light volume have upside risk but that has been capped at the 200 day moving average on the S&P 500.
Once we passed the 50% retracement from the 52 week high/low of 4227.78 that created a bullish sign while still in a downward bear market. The market has never fully retested the recent market low after passing the 50% retracement. That doesn’t mean we won’t go lower, and probability is we do now trade sideways to down within the trading channel.
Chart of SPX (S&P 500) 1-YR
- We recently hit the high end of this years channel which is the 200 day moving average and backed off from that level
- Stocks are not likely to retest the full lows but should test the bottom end of the channel if not at least the midpoint
- MACD is showing overbought and reversal of trend highlighted by circle
- RSI shows overbought highlighted by circle
- Volume is below average and the circle on the chart highlights when we did have spikes in volume which led to moves in stocks with conviction.
Home sales fall 6% in July with the housing market now in a recession but prices remain elevated which is out of alignment.
Meme stocks that are rallying big is not a good sign for a sustainable rally as this group is not a leadership group and rather mostly junk stocks that don’t create profits or are at risk of going out of business.
Bed Bath & Beyond is the perfect example of a stock gone crazy moving 20-30% a day up or down. Today it’s down 20% after activist investor Ryan Cohen’s filing that he intends to sell or has already sold his entire stake in the company.
Energy stocks continue to rally following the price in oil with Devon Energy gaining over 3% and Warren Buffet holding Occidental Petroleum rising 2%.
D&D sold more Apple today, D&D is still overweight Apple and it is still our largest holding so taking advantage of this enormous run up to take profits while stock is back near all time highs.
Closing Markets (as of 1:15pm PST)
DOW up 0.06%
S&P 500 up 0.23% (4,283.75)
NASDAQ up 0.21%
VIX down -1.81% to 19.54
2 Year Note down -7.49bp to 3.21%
10 Year Note down -2.00bp to 2.88%
Oil up 2.87% to $90.64 a barrel.
Gold down -0.20% to $1,773.20 an ounce.
Bitcoin up 0.21% to $23,343.73
Ethereum up 1.92% to $1,869.70
~ Dave James / Principal Trader and Market Strategist
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